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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of your private ruling

Authorisation Number: 1012566405978

Ruling

Subject: Non-commercial losses

Question

Will the Commissioner exercise the discretion in paragraph 35-55(1)(c) of the ITAA 1997 to allow you to include any losses from your primary production business activity in your calculation of taxable income for the 2009-10 to 2011-12 financial years?

Answer

No

This ruling applies for the following period

Year ended 30 June 2010

Year ended 30 June 2011

Year ended 30 June 2012

The scheme commenced on

1 July 2009

Relevant facts

You purchased a going concern

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 35-10(1)

Income Tax Assessment Act 1997 subsection 35-10(2)

Income Tax Assessment Act 1997 subsection 35-10(2E)

Income Tax Assessment Act 1997 paragraph 35-55(1)(c)

Reasons for decision

For the 2009-10 and later financial years, Division 35 of the ITAA 1997 will apply to defer a non-commercial loss from a business activity unless:

In your situation, you do not satisfy the income requirement (that is, your taxable income, reportable fringe benefits and reportable superannuation contributions but excluding your business losses, exceeds $250,000) and do not come under any of the exceptions. Your business losses are therefore subject to the deferral rule unless the Commissioner exercises his discretion.

The relevant discretion may be exercised for the financial year in question where:

Having regard to your full circumstances, it is not accepted that it is in the nature of the business activity that has prevented you from making a profit.

The Note to paragraph 35-55(1)(c) of the ITAA 1997 states that the particular paragraph is intended to cover a business activity that has a lead time between the commencement of the activity and the production of any assessable income.

It should be noted that the periods discussed above are measured from the commencement of the activity itself: Applicant 1761 of 2011 v. Commissioner of Taxation [2011] AATA 779 at 27 and not from the start of your involvement in the activity.

As you purchased a going concern which had been operated as a primary production business for a considerable period of time prior to the commencement of your involvement in the 2009-10 financial year it is considered the commercially viable period has passed.

The fact that the property had suffered from overstocking and needed considerable repairs and improvements on purchase does not restart the commercially viable period for your activity.

The Commissioner cannot exercise his discretion in your case because the objective commercially viable period has expired. Your inability to make a tax profit is not due to the nature of the business but to business decisions unique to your operation.

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